Golub Capital cuts dividend 15% on spread compression
BDC reduces quarterly payout after earnings miss and NAV decline as market pressures mount
Golub Capital BDC Inc. slashed its quarterly dividend by 15% after reporting disappointing fiscal first-quarter results, as the business development company contends with spread compression and deteriorating credit quality in its middle-market lending portfolio.
The New York-based lender reduced its quarterly distribution to $0.33 per share from $0.39, payable in March 2026, according to a regulatory filing. The move marks the first dividend cut for the company, which has maintained a relatively stable payout since going public in 2014.
Earnings per share fell to $0.25, missing analyst expectations of $0.376 by 33.5%, as reported by Chartmill. Revenue of $207.01 million also fell short of the $209.71 million consensus estimate. Net investment income per share declined to $0.37 from $0.38 in the prior quarter.
The dividend reduction reflects what management described as an "evolving outlook for rates, asset spreads, and financing costs in the market environment." New investment spreads compressed to 8.6% from 8.9% in the previous quarter, highlighting the pressure on lending margins across the middle-market sector.
Net asset value per share dropped to $14.84 from $14.97 at the end of September, driven by unrealized depreciation from underperforming portfolio companies and a realized loss on the restructuring of a portfolio investment. The company's leverage ratio increased to 1.27x from 1.23x.
Credit quality showed signs of deterioration, with investments rated as "performing materially below expectations" increasing to 1.3% of the portfolio at fair value from 1.0% in the prior quarter. Investments rated as "performing below expectations" rose to 10.1% from 9.6%, according to the company's internal performance rating system. No investments were rated as unlikely to be repaid in full.
"The board's decision to adjust the base distribution reflects our commitment to maintaining a stable net asset value while paying a sustainable high dividend yield," the company stated. The firm will continue its variable supplemental dividend policy, seeking to distribute 50% of earnings above the new $0.33 base rate through supplemental payments.
The challenges facing Golub Capital mirror broader pressures in the business development company sector, where rising interest rates and economic uncertainty have squeezed lending spreads and increased credit risk. BDCs, which provide debt and equity financing to middle-market companies, typically rely on spread income between borrowing costs and lending yields.
Shares of Golub Capital were trading around $13.06 on Wednesday, giving the company a market capitalization of approximately $3.48 billion. The stock has a dividend yield of roughly 11.7% based on the reduced payout. Analysts have a consensus target price of $15.00 on the stock, with ratings split between buy and hold recommendations, according to market data.
Looking ahead, analysts project earnings of $0.37 per share for the fiscal second quarter on revenue of $205.84 million. For the full fiscal year 2026, expectations call for EPS of $1.47 and revenue of $818.78 million.
The dividend cut and earnings miss represent a significant setback for Golub Capital, which has positioned itself as a relatively conservative player in the BDC sector. The company's price-to-book ratio of 0.90 suggests shares are trading below net asset value, a discount that reflects investor concerns about further credit deterioration and spread compression.
Investors will be watching closely for signs that credit quality stabilizes and whether new investment spreads can recover in coming quarters. The continuation of the supplemental dividend policy provides some upside potential if earnings improve, but the base dividend reduction signals a more cautious outlook for the foreseeable future.